<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
Commission File Number: 0-9969
CENTURY INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
District of Columbia 54-1100941
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
45034 Underwood Lane
Sterling, Va. 20166
(Mail) P.O. Box 319
Sterling, Va. 20167
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 471-7606.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
----- ----
(2) Yes X No
----- ----
At September 30, 1997, 3,226,533 shares of the Registrant's $.001 par value
Class A common stock were issued and outstanding, and 3,000,000 shares of the
Registrant's Class B common stock were issued and outstanding. Both the Class A
and Class B shares are registered pursuant to Section 12(b) and Section 12(g).
The Registrant's Class A and Class B shares currently trade on the Philadelphia
Stock Exchange (PHLX) under the symbols CII.A and CII.B. The Class A also trades
on the NASDAQ Bulletin Board under the symbol CNTI.
<PAGE> 2
INDEX
PART I FINANCIAL INFORMATION
ITEM I Financial Statements
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
Consolidated Statements of Operations
for the nine month periods
ended September 30, 1997 and 1996
and for the three months
ended September 30, 1997 and 1996
Consolidated Statement of Stockholders' Equity
for the quarters ended
March 31, June 30, and September 30,1997
Consolidated Statements of Cash Flows
for the nine month periods
ended September 30, 1997 and 1996
Notes to Financial Statements
ITEM 2 Management's Analysis of Financial Condition
and Results of Operations
<PAGE> 3
FINANCIAL STATEMENTS
In the opinion of management of Century Industries, Inc. and subsidiaries (the
Company), the accompanying unaudited interim consolidated financial statements
contain all adjustments necessary for a fair presentation of the Company's
financial condition as of September 30, 1997 and December 31, 1996, and the
results of its operations and cash flows for the nine month periods ended
September 30, 1997 and 1996.
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company's management believes that disclosures and information presented are
adequate and not misleading. Reference is made to the detailed financial
statement disclosures which should be read in conjunction with this report and
are contained in the notes to consolidated financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
Certain items in prior period consolidated financial statements have been
reclassified, where appropriate, to conform with the September 30, 1997
presentation.
F-1
<PAGE> 4
CENTURY INDUSTRIES INC, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30. 1997 AND DECEMBER 31, 1996
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS 9/30/97 12/31/96
- -------------- ------------------- --------------------
<S> <C> <C>
Cash and Cash Equivalents $ 993,174 $ 382,548
Accounts Receivable-Trade (Net of allowance for doubtful
accounts of $43,000 in 1997 and 1996) 2,221,166 1,263,910
Inventory 200,771 138,955
Marketable Securities 789,537 571,980
Other Current Assets 684,728 476,588
------------------- --------------------
TOTAL CURRENT ASSETS 4,889,376 2,833,981
LONG TERM ASSETS
- ----------------
Software and Computer Equipment 1,972,731 1,329,710
Furniture and Fixtures 781,900 1,009,376
Machinery and Equipment 15,221 548,230
Transportation Equipment 198,708 192,190
Leasehold improvements 149,212 139,296
------------------- --------------------
3,117,772 3,218,802
Less Accumulated Depreciation (1,026,992) (1,400,022)
------------------- --------------------
NET LONG TERM ASSETS 2,090,780 1,818,780
OTHER ASSETS
- ------------
Investments 1,162,649 0,000
Deferred Offering Costs 295,814 160,262
Deferred Acquisition Costs 483,397 305,000
Security Deposits 54,309 56,144
Goodwill (Net of accumulated amortization of $25,107 in 2,032,873 2,038,139
1997 and $31,605 in 1996)
Due from Related Parties 742,677 421,633
Other Assets 195,540 197,309
------------------- --------------------
TOTAL OTHER ASSETS 4,967,259 3,348,487
------------------- --------------------
TOTAL ASSETS $11,947,415 $ 8,001,248
=================== ====================
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE> 5
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES 9/30/97 12/31/96
- ------------------- -------------------- --------------------
<S> <C> <C>
Accounts payable - Trade $ 1,871,027 $ 1,650,270
Current Maturities - Long Term Debt 240,959 243,569
Capital Lease Obligations 90,385 146,806
Notes Payable 200,000 200,000
Advances from Stockholders - 200,000
Accrued Expenses 1,044,856 920,616
Dividends Payable 47,074 97,950
-------------------- --------------------
TOTAL CURRENT LIABILITIES 3,494,301 3,459,211
LONG TERM NOTES PAYABLE, LESS CURRENT PORTION 575,281 763,452
- ---------------------------------------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 168,127 154,850
- -----------------------------------------------
-------------------- --------------------
TOTAL LIABILITIES 4,237,709 4,377,513
-------------------- --------------------
MINORITY INTEREST 67,996 25,811
-------------------- --------------------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock, Convertible, $.001 par value, 1,200,000 shares 1,060 1,000
authorized, 1,060,000 and 1,000,000 issued and outstanding
Common Stock, Class A, $.001 par value, 25,000,000 shares 3,226 3,096
authorized, 3,226,000 issued and outstanding
Common Stock, Class B, $.001 par value, 25,000,000 shares 3,000 3,000
authorized, 3,000,0000 issued and outstanding
Additional Paid in Capital 7,829,193 4,388,099
Retained Deficit (194,769) (797,271)
-------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 7,641,710 3,597,924
-------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,947,415 $ 8,001,248
==================== ====================
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 6
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
-----------------------------------------------------------------
Insurance Parent
Steel (Development Claims Holding
Products Stage) Processing Company Total
------------ ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 3,311,099 $ - $ 7,915,740 $ - $ 11,226,839
Cost of Sales 2,549,150 - 3,760,232 - 6,309,382
------------ ---------- ------------ ----------- -------------
Gross Profit 761,949 - 4,155,508 - 4,917,457
Operating Costs
Payroll Expenses 212,963 - 1,505,555 - 1,718,518
Professional Fees 4,205 45,437 74,715 98,223 222,580
Auto, Travel and Entertainment 19,143 - 199,077 4,797 223,017
Amortization and Depreciation 6,026 67,610 140,535 13,992 228,163
Other 151,325 86,473 1,416,773 47,801 1,702,372
------------ ---------- ------------ ----------- -------------
Total Operating Costs 393,662 199,520 3,336,655 164,813 4,094,650
------------ ---------- ------------ ----------- -------------
Operating Income (Loss) 368,287 (199,520) 818,853 (164,813) 822,807
Other Income (Expenses)
Other Income (Expenses) - 301,214 (200,029) - 101,185
Interest Expense (27,450) - (88,544) - (115,994)
------------ ---------- ------------ ----------- -------------
Total Other Income (Expense) (27,450) 301,214 (288,573) - (14,809)
------------ ---------- ------------ ----------- -------------
Income (Loss) Before Taxes $ 340,837 $ 101,694 $ 530,280 $ (164,813) $ 807,998
============ ========== ============ =========== =============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996
---------------------------------------------------------------
Insurance Parent
Steel (Development Claims Holding
Products Stage) Processing Company Total
------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,080,570 $ - $ - $ - $ 2,080,570
Cost of Sales 1,489,058 - - - 1,489,058
------------ ----------- ---------- ----------- ------------
Gross Profit 591,512 - 591,512
Operating Costs
Payroll Expenses 297,564 - - - 297,564
Professional Fees 24,814 456,483 - 116,285 597,582
Auto, Travel and Entertainment 23,259 35,326 - - 58,585
Amortization and Depreciation 6,361 30,989 - - 37,350
Other 104,181 112,618 - - 216,799
------------ ----------- ---------- ----------- ------------
Total Operating Costs 456,179 635,416 - 116,285 1,207,880
------------ ----------- ---------- ----------- ------------
Operating Income (Loss) 135,333 (635,416) - (116,285) (616,368)
Other Income (Expenses)
Other Income (Expenses) 1,463 3,893 - - 5,356
Interest Expense (27,606) (567) - - (28,173)
------------ ----------- ---------- ----------- ------------
Total Other Income (Expense) (26,143) 3,326 - - (22,817)
------------ ----------- ---------- ----------- ------------
Income (Loss) Before Taxes $ 109,190 $ (632,090) $ - $ (116,285) $ (639,185)
============ =========== ========== =========== ============
</TABLE>
(Continued)
See accompanying notes to financial statements
F-4
<PAGE> 7
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Total Income (Loss) Before Taxes $ 807,998 $(639,185)
Provision (Benefit) For Taxes 15,900 (51,043)
---------- ----------
Net Income (Loss) $ 792,098 $(588,142)
Preferred Stock Dividends (200,030) (76,420)
---------- ----------
Net Income (Loss) Available for Common Stockholders $ 592,068 $(664,562)
---------- ----------
Earnings (Loss) Per Share $ 0.10 $ (0.35)
---------- ----------
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 8
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
---------------------------------------------------------------------------------------
Insurance Parent
(Development Claims Holding
Steel Products Stage) Processing Company Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,084,273 $ - $ 2,292,282 $ - $ 3,376,555
Cost of Sales 883,589 - 1,076,482 - 1,960,071
------------- -------------- -------------- ------------ -------------
Gross Profit 200,684 - 1,215,800 - 1,416,484
Operating Costs
Payroll Expenses 11,486 - 357,706 369,192
Professional Fees (299) 12,501 20,306 50,714 83,222
Auto, Travel and Entertainment (542) (14,157) 61,077 1,676 48,054
Amortization and Depreciation 1,964 23,345 46,845 (298) 71,856
Other 65,061 24,632 520,246 29,312 639,251
------------- -------------- -------------- ------------ -------------
Total Operating Costs 77,670 46,321 1,006,180 81,404 1,211,575
------------- -------------- -------------- ------------ -------------
Operating Income (Loss) 123,014 (46,321) 209,620 (81,404) 204,909
Other Income (Expenses)
Other Income (Expenses) 46,156 99,907 (112,344) - 33,719
Interest Expense (8,278) (27,643) - (35,921)
------------- -------------- -------------- ------------ -------------
Total Other Income (Expense) 37,878 99,907 (139,987) - (2,202)
------------- -------------- -------------- ------------ -------------
Income (Loss) Before Taxes $ 160,892 $ 53,586 $ 69,633 $ (81,404) $ 202,707
============= ============== ============== ============= ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1996
-------------------------------------------------------------------------------
Insurance Parent
Steel (Development Claims Holding
Products Stage) Processing Company Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 611,925 $ - $ - $ - $ 611,925
Cost of Sales 487,013 - - - 487,013
------------- ------------ ------------ ------------- -------------
Gross Profit 124,912 - - - 124,912
Operating Costs
Payroll Expenses 98,484 - - - 98,484
Professional Fees 3,927 109,556 - 5,894 119,377
Auto, Travel and Entertainment 7,575 16,400 - - 23,975
Amortization and Depreciation 2,145 29,388 - - 31,533
Other 36,910 76,390 - - 113,300
------------- ------------ ------------ ------------- -------------
Total Operating Costs 149,041 231,734 - 5,894 386,669
------------- ------------ ------------ ------------- -------------
Operating Income (Loss) (24,129) (231,734) - (5,894) (261,757)
Other Income (Expenses)
Other Income (Expenses) - (472) - - (472)
Interest Expense (6,724) 2,656 - - (4,068)
------------- ------------ ------------ ------------- -------------
Total Other Income (Expense) (6,724) 2,184 - - (4,540)
------------- ------------ ------------ ------------- -------------
Income (Loss) Before Taxes $ (30,853) $ (229,550) $ - $ (5,894) $ (266,297)
============= ============= ============ ============= =============
</TABLE>
(Continued)
See accompanying notes to financial statemenets
F-6
<PAGE> 9
CENTURY INDUSTRIES, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Continued)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
---- ----
<S> <C> <C>
Total Income (Loss) Before Taxes $ 202,707 $(266,297)
Provision (Benefit) For Taxes (54,300) (12,143)
---------- ----------
Net Income (Loss) $ 257,007 $(254,154)
Preferred Stock Dividends (32,330) (49,000)
---------- ----------
Net Income (Loss) Available for Common Stockholders $ 224,677 $(303,154)
---------- ----------
Earnings (Loss) Per Share $ 0.04 $ (0.13)
---------- ----------
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 10
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE QUARTERS ENDED MARCH 31, JUNE 30, AND SEPTEMBER 30 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED COMMON COMMON
STOCK STOCK CLASS A STOCK CLASS B
----------------------------------------------------
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ 1,000 $ 3,096 $ 3,000
Issuance of 10,875 shares of preferred stock 10 -
Unrealized loss on marketable securities - - -
Net Income for three months ended 3/31/97 - -
Preferred dividends - - -
----------- ----------- -----------
BALANCE MARCH 31, 1997 $ 1,010 $ 3,096 $ 3,000
=========== =========== ===========
Issuance of 2,175 shares of preferred stock $ 3 - -
Unrealized gain on marketable securities - - -
Net Income for three months ended 6/30/97 - - -
Preferred dividends - - -
----------- ----------- -----------
BALANCE JUNE 30, 1997 $ 1,013 $ 3,096 $ 3,000
----------- ----------- -----------
Issuance of 49,250 shares of preferred stock 47 - -
Issuance of 130,000 shares of common
stock in lieu of preferred dividends - 130 -
Unrealized Gain Marketable Securities - - -
Net Income for three months ended 9/30/97 - - -
Preferred dividends - - -
----------- ----------- -----------
BALANCE SEPTEMBER 30, 1997 $ 1,060 $ 3,226 $ 3,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL RETAINED STOCKHOLDERS
PAID IN CAPITAL EARNINGS (DEFICIT) EQUITY
-----------------------------------------------------
<S> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ 4,388,099 $ (797,271) $ 3,597,924
Issuance of 10,875 shares of preferred stock 1,664,270 - 1,664,280
Unrealized loss on marketable securities (1,061) (1,061)
Net Income for three months ended 3/31/97 202,941 202,941
Preferred dividends (141,950) (141,950)
----------- ----------- -----------
BALANCE MARCH 31, 1997 $ 6,052,369 $ (737,341) $ 5,322,134
=========== =========== ===========
Issuance of 2,175 shares of preferred stock 696,316 - 696,319
Unrealized gain on marketable securities - 4,909 4,909
Net Income for three months ended 6/30/97 - 332,150 332,150
Preferred dividends - (25,750) (25,750)
----------- ----------- -----------
BALANCE JUNE 30, 1997 $ 6,748,685 $ (426,032) $ 6,329,762
----------- ----------- -----------
Issuance of 49,250 shares of preferred stock 1,080,508 - 1,080,555
Issuance of 130,000 shares of common
stock in lieu of preferred dividends - 6,586 130
Unrealized Gain Marketable Securities - - 6,586
Net Income for three months ended 9/30/97 - 257,007 257,007
Preferred dividends - (32,330) (32,330)
----------- ----------- -----------
BALANCE SEPTEMBER 30, 1997 $ 7,829,193 $ (194,769) $ 7,641,710
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 11
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
9/30/97 9/30/96
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Cash received from customers $ 10,269,583 $ 1,961,018
Cash paid to suppliers and employees (10,274,896) (2,539,400)
Interest (115,994) (24,589)
Income taxes (15,900) --
------------ -----------
Net cash provided (used) by operating activities (137,207) (602,971)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Investment in DCP -- (700,000)
Cash acquired in acquisition of DCP -- 100,303
Purchase of fixed assets (272,000) (52,555)
Purchase of marketable securities and investments (1,222,159) (147,945)
------------ -----------
Net cash provided (used) by investing activities (1,494,159) (800,197)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds from sale of preferred stock 3,096,632 2,079,500
Preferred dividends paid (278,122) (27,420)
Receipts of (payments on) notes (233,925) (37,818)
Net advances from (to) affiliates-stockholders (342,593) (100,602)
------------ -----------
Net cash provided (used) by financing activities 2,241,992 1,913,660
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 610,626 510,492
- -----------------------------------------
Cash and Cash Equivalents - January 1 382,548 24,471
- ------------------------------------- ------------ -----------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30 $ 993,174 $ 534,963
- ---------------------------------------- ============ ===========
Net income (loss) $ 792,098 $ (588,142)
Issuance of common stock in exchange for consulting services -- 100,000
Amortization and depreciation 228,163 46,555
Minority Interest 42,185 --
(Increase) decrease in accounts receivable (957,256) (121,189)
(Increase) decrease in inventory (61,816) --
(Increase) decrease in other current assets and other assets (569,727) (57,500)
Increase (decrease) in accounts payable 220,759 23,163
Increase (decrease) in accrued expenses 168,387 (5,858)
------------ -----------
Net cash provided (used) by operating activities $ (137,207) $ (602,971)
============ ===========
</TABLE>
(continued)
See accompanying notes to financial statements
F-9
<PAGE> 12
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(continued)
For the purpose of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Non-cash investing and financing activities:
During the quarter ended September 30, 1997 and for the nine months ended
September 30,1997, the Company recognized unrealized gains of $6,586 and
$11,495, respectively, on marketable securities available for sale. In
accordance with Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities, the investment and
retained earnings accounts were increased by $6,586 and $11,495, respectively.
Dividends of $200,030 and $76,420 were accrued and charged to retained earnings
for the nine months ended September 30, 1997 and 1996, respectively.
See accompanying notes to financial statements
F-10
<PAGE> 13
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Century Industries, Inc. (the Company) (CNTI) was incorporated in the District
of Columbia in 1993 and is the parent holding company for its subsidiaries,
Century Steel Products, Inc., D.C.Partners Ltd, Inc. and U.S. Insurance Brokers,
Inc.
Century Steel Products, Inc. (CSP), which was incorporated in Virginia in 1979
and acquired by the Company in 1993, manufactures and fabricates steel products
used in the construction industry. CSP sells its services and products
nationwide, primarily along the East Coast from its sales and manufacturing
plant located in Sterling, Virginia. CSP grants credit to customers in the
construction industry. Consequently, CSP's ability to collect the amounts due
from customers is affected by economic fluctuations in the construction
industry.
U.S. Insurance Brokers, Inc. (USIB), previously referred to as USAOCA, which was
incorporated in the District of Columbia on April 27, 1995, is a development
stage life and casualty insurance agent which markets full service association
life, automobile, homeowner and health insurance plans, and life insurance
company-managed financial products to various associations and other
membership-based organizations.
Scibal Associates, Inc. (Scibal), which is owned by D.C. Partners Ltd, Inc.
(D.C. Partners), operates as a third party claims administrator (TPA) processing
a wide range of claim types including medical, workers' compensation, general
liability, product liability, professional malpractice and other insurance
claims for its clients throughout the United States. D.C. Partners was acquired
by USIB during 1996 (See Note 2 below).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for 1997 include the accounts of Century
Industries, Inc. and its subsidiaries, CSP, USIB, and D.C Partners and CSP and
USIB in 1996. The Company owns approximately 80% of CSP's common stock and 100%
of USIB's and D.C. Partners' common stock. All material intercompany accounts
and transactions have been eliminated. Minority interests in a subsidiary are
recognized to the extent that the minority interests in equity capital are
positive. When losses applicable to minority interests exceed minority interest
in equity capital, the excess is charged against the Company's interest.
Subsequent minority interest earnings are credited to the Company to the extent
of minority interest losses previously absorbed. In the year of acquisition, a
subsidiary's income and expenses are included in the consolidated statement of
operations only to the extent of the post-acquisition activity.
Since D.C. Partners was acquired by USIB on November 13, 1996 their results of
operations are included in the consolidated statements of operations for the six
months and quarter ended June 30, 1997. D.C. Partners' assets and liabilities as
of June 30, 1997 and December 31, 1996 are included in the related balance
sheets. See Note 2 below for selected financial statement disclosures related to
the D.C. Partners acquisition.
ACQUISITIONS AND GOODWILL
The consolidated financial statements include the net assets of businesses
purchased and recorded at cost, which was measured by the fair value of
consideration given or net assets received, whichever was more clearly evident,
at the acquisition date. The excess of acquisition costs over the fair value of
net
F-11
<PAGE> 14
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
ACQUISITIONS AND GOODWILL (CONTINUED)
assets acquired has been allocated to and is included in goodwill. Goodwill is
amortized on a straight-line basis over 30 years. Management periodically
reviews the business environment of its aquirees for potential impairment
writedowns.
INVENTORY
Inventory consists primarily of raw steel products and is recorded at cost, on
the first- in, first- out basis.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are stated at cost. For
financial reporting, depreciation and amortization are provided using
straight-line and double-declining balance methods and the following estimated
useful lives:
<TABLE>
<S> <C>
Software and computer equipment 5-7 YEARS
Furniture and fixtures 5-7 YEARS
Machinery and equipment 7-10 YEARS
Transportation equipment 3-7 YEARS
Leasehold improvements 10-15 YEARS
</TABLE>
For income tax purposes, depreciation is computed using the accelerated cost
recovery system and the modified accelerated cost recovery system. Expenditures
for major renewals and betterment that extend the useful lives of property and
equipment are capitalized. Expenditures for maintenance and repairs are charged
to expense as incurred. The cost of property retired or sold and the related
accumulated depreciation are removed from the applicable accounts, and the
resulting gains and losses are reflected in the consolidated statements of
operations.
SOFTWARE COSTS
Pursuant to Statement of Financial Accounting Standards No.86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" issued
by the Financial Accounting Standards Board, D.C. Partners capitalizes certain
software development and production costs once technological feasibility has
been achieved. The cost of purchased software is capitalized when related to a
product which has achieved technological feasibility or that has an alternative
future use. D.C. Partners capitalizes internal software development costs,
related to new products reaching technological feasibility. At September 30,
1997 and December 31, 1996, D.C. Partners capitalized software amounting to
approximately $1,060,000 and $780,000, respectively. Capitalized software
development and purchased software costs are reported at the lower of
unamortized costs or net realizable value. Commencing upon initial product
release, these costs will be amortized based on the straight-line method over
the estimated life.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the bases of allowances for doubtful
accounts and fixed assets for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return consequences of those
differences which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes also are recognized for
operating losses that are available to offset future federal and state income
taxes. The Company files consolidated income tax returns.
REVENUE RECOGNITION
Steel Products
Revenue is recognized on steel products when the products are shipped to
customers. Revenue is recognized on fabrication projects as contract line-item
tasks are completed. Line item tasks are generally short-term in nature.
Accordingly, expenses are recognized when incurred. Losses are recognized when
F-12
<PAGE> 15
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
REVENUE RECOGNITION (CONTINUED)
reasonable estimates of the amount of loss can be made. The Company periodically
reviews the credit, collection and sales allowance history and status of its
customers and provide for potential losses.
Development Stage Insurance Operations
Commissions from insurance contracts generated by USIB are recognized as
insurance premiums when collected by the insurance carriers.
Claims Administration
D.C. Partners contracts with its clients to process various types of casualty
claims. Generally, the contracts provide that for an agreed upon annual fee,
D.C. Partners will administer up to a specified number of claims. D.C. Partners
recognizes this revenue on a pro rata basis throughout the billing year. If less
than the estimated number of claims is administered, D.C. Partners is entitled
to the full amount of the contract. In the event more claims than estimated are
administered, the client will be billed extra based on a predetermined amount
per file, per file type, per state. Additionally, if a file remains open for
more than two years, D.C. Partners is entitled to an additional fee for the file
on a one-time basis. Revenue from these situations is recognized when the
contractual criteria are met. Included in other current assets is approximately
$397,000 at September 30, 1997 and $408,000 at December 31, 1996 related to
"average billings" captured from an analysis of claims' work in process.
IMPREST FUNDS
As a third party administrator, D.C. Partners' clients deposit funds with D.C
Partners to administer the clients' claims. D.C. Partners places these funds in
various cash accounts set up solely for the purpose of paying that client's
claims.
CASH
From time to time during the periods presented, the Company maintained cash
balances in excess of federally insured limits.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of common
stock and common stock equivalents outstanding during each period. Earnings per
share is computed using the treasury stock method. The weighted average number
of shares used for the computations of earnings per share approximated 6,000,000
and 2,300,000 for the quarters ended September 30, 1997 and 1996, respectively.
RECLASSIFICATIONS
Certain items in prior period consolidated financial statements have been
reclassified, where appropriate, to conform with the September 30, 1997
presentation.
2) ACQUISITION OF D.C. PARTNERS, LTD., INC.
On June 30, 1996, the Company entered into a "Plan and Agreement of
Reorganization and Capitalization" (Agreement) through its wholly-owned
subsidiary U.S. Insurance Brokers (USIB), with D.C. Partners, Ltd., Inc. (D C.
Partners). The Agreement called for the acquisition by USIB of D.C. Partners in
two phases. The first phase, which was completed by September 30, 1996, was the
purchase for $700,000 of 49% of the equity in D.C. Partners as represented by
its Series B Common Stock. The Series B Common Stock, although representing 49%
of the equity in D.C. Partners, had only 4.9% of the total voting power.
In the second phase of the acquisition, which was originally to be completed by
June 30, 1997, the remaining equity and voting stock in D.C. Partners were to be
surrendered to the Company in exchange for 820,000 shares of the voting common
stock of the Company plus a cash payment of $3,000,000. On September 30, 1996,
the Agreement was amended and the remaining stock purchased was accelerated. On
November 13,1997 the Agreement was further amended to replace the unpaid $
2,000,000 remaining.
F-13
<PAGE> 16
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
ACQUISITION OF D.C. PARTNERS, LTD., INC. (CONTINUED)
with a warrant for 727,273 shares of the Company's Class B Common Stock, valued
at $ 2.75 per share, with demand registration rights attached thereto, beginning
December 31,1997. In addition, the stockholder of D.C. Partners received 50,000
options for his efforts and costs incurred in completing this transaction.
PRO FORMA INFORMATION
The following unaudited pro forma information purports to show the effects on
financial position at December 31, 1996 and results of operations for the year
ended December 31, 1996, had the acquisition of D.C. Partners occurred at the
beginning of the year. This unaudited pro forma information is based on
historical financial position and results of operations, adjusted for
acquisition costs and amortization of goodwill, and is not necessarily
indicative of what the results would have been had the Company operated D.C.
Partners since the beginning of the year.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED 12/31/96 Historical PRO FORMA
(UNAUDITED) Century DCP(b) Adjustments COMBINED
----------- ------- ------ ----------- --------
<S> <C> <C> <C> <C>
Revenues $ 2,676,306 $ 10,718,163 $ - $ 13,394,469
Cost of sales 1,964,963 5,414,967 - 7,379,930
--------------- ---------------- -------------- --------------
Gross Profit 711,343 5,303,196 - 6,014,539
Operating expenses 1,149,456 4,686,316 133,750 (a) 5,969,522
Other (income) expense (123,044) 575,342 - 452,298
--------------- ---------------- -------------- --------------
Income (loss) before income taxes (315,069) 41,538 (133,750) (407,281)
Income tax provision (benefit) (41,700) 15,000 - (26,700)
--------------- ---------------- -------------- --------------
Income (loss) before extraordinary item $ (273,369) $ 26,538 $ (133,750) $ (380,581)
=============== ================ ============== ==============
</TABLE>
(a) The adjustments to operating expenses include the following items:
<TABLE>
<S> <C>
Acquisition costs $ 80,000
Goodwill amortization 53,750
--------
$133,750
========
</TABLE>
(b) This column includes the accounts of Scibal Associates, Inc. (Scibal), D.C.
Partners' sole and wholly owned subsidiary, which D.C. Partners acquired in
1996. Scibal's fiscal year-end is September 30th. Accordingly, the amounts shown
represent the year ended September 30, 1996 taken from D.C. Partners and
subsidiary audited financial statements.
At December 31, 1996, assuming the acquisition of D.C. Partners occurred at the
beginning of 1996, the Company's balance sheet would have $44,800 more
accumulated amortization of goodwill, total assets would be $44,800 less and
retained deficit would be $44,800 higher. Tax effects would be minimal, as the
related increases in deferred tax assets would be offset by a deferred tax asset
valuation allowance.
3) SALE OF PREFERRED STOCK
In 1996, USIB authorized an additional 125,000 shares of 12.5% Series A
cumulative preferred stock, convertible to Class B Common Stock of the Company,
at the rate of 40 shares of the Company for one preferred share of USIB. The
Company, simultaneously therewith, constructively issued 3,000,000 Class B
common stock to the Trustee, for the ultimate conversion of USIB convertible
preferred shares at the rate of $40 per share divided by the average quoted
price of the Company's common stock during the offering period (which is
currently estimated to be $2.25).
Proceeds from the sale of USIB preferred stock are being used for the
acquisition of D.C. Partners as well as to support the development stage
activities of USIB. USIB has recorded as deferred offering costs, the expenses
incurred in connection with this stock offering. Such costs will be charged
against the proceeds of the offe when it is completed.
F-14
<PAGE> 17
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
SALE OF PREFERRED STOCK (CONTINUED)
The USIB preferred stock will be converted to Class B common stock of the
Company during the fourth quarter of 1997.
The USIB offering was replaced during the second quarter by an offering of the
convertible preferred shares of the Company on the same terms and conditions as
the USIB offering.
4) INCOME TAXES
The provision (benefit) for taxes consists of the following:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current
Federal $(59,200) $ 2,381 $ - $ (1,419)
State 4,900 176 15,900 (1,024)
--------- --------- -------- ---------
(54,300) 2,557 15,900 (2,443)
Deferred - (14,700) - (48,600)
--------- --------- -------- ---------
$(54,300) $(12,143) $ 15,900 $(51,043)
========= ========= ======== =========
</TABLE>
Deferred tax assets resulted primarily from the Company's net operating loss of
approximately $730,000 at September 30, 1997 and $614,000 at September 30, 1996.
Such net operating loss is comprised of prior year's losses plus the net
operating loss acquired from D.C. Partners. This net operating loss is available
to offset future taxable income. The related deferred tax asset of $290,000 has
been reduced by a valuation allowance of $140,000. Other deferred tax assets
resulted from the tax bases of trade accounts receivable exceeding their bases
for financial reporting by the amount of the allowance for doubtful accounts,
the tax bases of fixed assets exceeding their bases for financial reporting, and
from approximately $4,200 of charitable contributions available to offset future
taxable income. The net operating loss carry forward will expire in 2011, and
the charitable contribution carry forward will expire in 2000.
Net deferred tax assets consisted of the following at September 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Total deferred tax liabilities $ - $ -
Total deferred tax assets 290,000 262,000
Total valuation allowance (140,000) (100,800)
--------- ---------
$150,000 $161,200
========= =========
</TABLE>
Of the net deferred tax assets at September 30, 1997 and December 31, 1996,
$4,000 and $9,000 were included in other current assets, and $146,000 and
$152,200 were included as other assets, respectively.
5) RELATED PARTY TRANSACTIONS
During the quarter ended September 30, 1997, the Company advanced approximately
$308,000 to stockholders-officers of the Company. For the nine months ended
September 30, 1997, the Company advanced approximately $438,493 to
stockholders-officers of the Company and an affiliated party. Such advances are
non-interest bearing.
For the nine months ended September 30, 1997 an officer of USIB received
approximately $1,090,000 for services provided as selling expenses in issuing
shares of preferred stock. Equity and cash proceeds were reduced by this amount
as a direct cost of issuing the preferred stock.
F-15
<PAGE> 18
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
D.C. Partners has a minority stock position in a corporation, which owns an
office building. The office building was vacant for a portion of time, during
which time D.C. Partners funded the debt service and maintenance costs of the
property, which has been recorded as a receivable. The property is for sale, and
D.C. Partners feels that its receivable will be collected when it is sold.
The Company incurred $100,000 of consulting fees from an affiliated company in
1994. The fees pertained to an unsuccessful business acquisition attempt and
were included in accounts payable at December 31, 1995. Such debt was forgiven
and cancelled effective December 31, 1996.
6) LINE OF CREDIT
D.C. Partners maintains a $200,000 credit line with a bank in order to meet
seasonal working capital requirements and other financing needs as they arise.
Short-term borrowings on this line at September 30, 1997and December 31, 1996
totaled $200,000, which is due on demand with interest at prime plus 1%.
7) LONG-TERM DEBT
Long-term debt at September 30, 1997 and December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
$500,000 note payable, due in equal monthly payments of
$8,333 plus interest at prime plus 1% for sixty (60) months
due through August 2001, secured by all assets of D.C. Partners $402,590 $483,333
$250,000 guidance note to finance new capital expenditures, due
in equal monthly installments plus interest at prime plus 1% for
thirty-six (36) months, secured by all assets of D.C. Partners 190,756 255,783
D.C. Partners has a $27,500 note payable due in monthly installments
of $691 including interest at a rate of 9.5% per annum for forty-eight
(48) months through August 2000 20,894 25,905
CSP has a note dated July 1995, maturing December 2001. Monthly
payments are required consisting of principal of $4,000 plus accrued
interest at 1.5% over prime. The note is secured by all of CSP's
assets and is guaranteed by a stockholder-officer 202,000 242,000
------- -------
816,240 1,007,021
Less: Current portion 240,959 243,569
------- ----------
Long term portion $575,281 $ 763,452
======== ==========
</TABLE>
Future minimum payments on long-term debt as of September 30, 1997 and December
31, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
1997 $52,788 $ 243,569
1998 240,159 240,159
1999 240,806 240,806
2000 170,518 170,518
2001 and thereafter 111,969 111,969
------- ----------
$816,240 $1,007,021
======== ==========
</TABLE>
Interest cost, none of which was capitalized, was approximately $115,994 and
$28,173 for the nine months ended September 30, 1997 and 1996, respectively.
F-16
<PAGE> 19
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
8) COMMITMENTS AND CONTINGENCIES
Computer Lease
In November 1986, D.C. Partners entered into a lease agreement with XL/Datacomp
(XLD) a computer consultant, for certain computer equipment. At various times
from November 1986 through March 1994 additions and other changes were made to
the equipment and lease. Under the current terms of the lease, as of March 1994,
the company was obligated to pay $14,215 per month for a sixty-month term
commencing in March 1994.
On August 17, 1996 D.C. Partners filed suit in the Superior Court of New Jersey
against XLD and its assignees maintaining that XLD knowingly leased them
obsolete, substandard equipment which XLD knew to be inadequate for their needs.
In addition, D.C. Partners claims that XLD has knowingly and substantially
overcharged for this equipment. D.C. Partners were seeking to recover damages
and costs related to this lease and to be relieved of any future obligations
under this lease. As of July 11, 1997 the lawsuit was settled for $200,000 to be
paid by D.C. Partners by July 1998. D.C Partners has already accrued $137,500,
and paid $75,000 in July 1997. The balance will be paid as follows: January 1,
1998 $75,000, and July 1, 1998 $50,000.
Building Leases
The company and its subsidiaries lease office space and transportation vehicles
under various operating leases expiring through January 2001.
Future minimum payments under these leases as of September 30, 1997 are as
follows:
<TABLE>
<S> <C>
1997 $ 111,309
1998 355,299
1999 297,728
2000 252,796
2001 26,322
-----------
$ 1,043,454
===========
</TABLE>
Net rent expense was approximately $483,300 and $30,050 for the nine months
ended September 30, 1997 and 1996, respectively.
Obligations Under Capital Leases
The Company leases equipment under leases which are treated as capital items
according to FASB 13. During the third quarter the Company completed a
restructuring of these leases, extending the lease period to more closely match
the expected useful lives of the equipment. A gain of $13,084 was recognized
from this restructuring, which is recorded under "Other Income". The leases,
which prior to the restructuring expired in 1998, now extend until May 2000. The
assets and liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the asset.
Following is a summary of property held under capital leases:
<TABLE>
<S> <C>
Computer equipment $ 438,739
Less: Accumulated depreciation (76,779)
---------
$ 361,960
=========
</TABLE>
Minimum future lease payments under capital leases for each of the next five
years and in the aggregate are:
<TABLE>
<S> <C>
1997 $ 27,000
1998 108,000
1999 108,000
2000 45,000
======================================================-------
Total minimum lease payments 288,000
Less: Amount representing interest (31,807)
---------
Present value of net minimum lease payments $ 256,193
=========
</TABLE>
The interest rate on capitalized leases range from 0.% to 11.75% and is imputed
based on the lower of the incremental borrowing rate at the inception of each
lease (as restructed) or the lessor's implicit rate of return.
Effective January 1, 1997, the Company adopted a key Employee Stock Option Plan.
F-17
<PAGE> 20
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
9) MARKETABLE SECURITIES AND OTHER FINANCIAL INSTRUMENTS
All marketable securities are classified as available for sale and are available
to support current operations or to take advantage of other investment
opportunities. These securities are stated at estimated fair value based upon
market quotes. Unrealized gains and losses, net of income taxes, are included in
retained earnings. Realized gains, realized losses and declines in value, judged
to be other than temporary, are included in other income (expense).
The Company's financial instruments include cash, accounts receivable,
marketable securities, accounts payable, accrued expenses and other current
liabilities and long-term debt. The book values of cash, accounts receivable,
marketable securities, accounts payable and accrued expenses and other current
liabilities are representative of their fair values due to the short-term
maturity of these instruments. The book value of the Company's long-term debt is
considered to approximate its fair value, based on current market rates and
conditions.
10) INVESTMENTS
The Company has interests in certain long-term investments. Included in the
balance of investments at September 30 is the following:
<TABLE>
<S> <C> <C>
Investment in third party administrative company $ 40,000 $ 45,000
Marketable securities investment funds 122,842 67,500
Investment in an insurance related corporation by CSP 57,500 57,500
Investment in CNTI common stock by CSP 12,307 -
Investment in construction joint ventures by CSP 600,000 -
Investment in an insurance added joint venture 330,000 -
---------------- --------------
$ 1,162,649 $ 170,000
================ ==============
</TABLE>
11) DUE FROM RELATED PARTIES
This represents advances made to various related parties. These advances are
non-interest bearing and have no specific repayment terms.
12) MAJOR CUSTOMERS
During the nine month period ended September 30, 1997, two customers accounted
for approximately 20% of sales. During the nine month period ended September 30,
1996, approximately 18% of sales were to a single contractor, primarily due to a
single contract.
13) STOCKHOLDERS' EQUITY
CSP declared dividends to its preferred stockholders in the amount of $1,950 for
the quarters ended September 30, 1997 and 1996, respectively. At September 30,
1997 and December 31, 1996, dividends of $1,950 were accrued but unpaid.
The Company declared dividends to its preferred stockholders in the amount of
$32,330 for the quarter ended September 30, 1997. At September 30, 1997 and
December 31, 1996 dividends of $47,074 and $96,000, respectively, were accrued
but unpaid.
F-18
<PAGE> 21
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Shares of common stock were reserved at September 30, 1997 and December 31, 1996
for the following:
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Conversion of a warrant for 1,000,000 shares
CNTI preferred stock into CNTI Class A
common Stock 1,000,000 --
Exercise of 777,273 outstanding warrants
exercisable subsequent to December 31,
1997 in conjunction with D.C. Partners
acquisition -- 777,273
Conversion of 500,000 warrants into CNTI Class
B common shares -- 500,000
Conversion of 300,000 warrants into CNTI Class
B common shares -- 300,000
Conversion of 25,000 warrants into CNTI Class
A common shares 25,000 --
Conversion of 250,000 warrants into CNTI Class
A common shares 250,000 --
Conversion of 250,000 warrants into CNTI Class
A common shares 250,000 --
Conversion of 270,834 warrants into CNTI Class
A common shares 270,834 --
--------- --------
1,795,834 1,577,273
========= =========
</TABLE>
F-19
<PAGE> 22
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF
EARNINGS PER SHARE
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED 9/30/97 ENDED 9/30/96
------------------- -------------------
<S> <C> <C>
EARNINGS PER SHARE
- ------------------
Adjusted Net Income:
Net Income (Loss) $ 792,098 $ (588,142)
----------------- -----------------
Dividends on preferred stock (200,030) (76,420)
----------------- -----------------
----------------- -----------------
Total adjusted net income ( I ) $ 592,068 $ (664,562)
----------------- -----------------
Total adjusted weighted - average shares outstanding ( II ) 6,000,000 1,906,556
----------------- -----------------
----------------- -----------------
Earnings (Loss) Per Share (I divided by II) $ 0.10 $ (0.35)
----------------- -----------------
</TABLE>
F-20
<PAGE> 23
CENTURY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF COMPUTATION OF
EARNINGS PER SHARE
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE THREE
ENDED 9/30/97 MONTHS ENDED 9/30/96
-------------------- --------------------
<S> <C> <C>
EARNINGS PER SHARE
Adjusted Net Income:
Net Income (Loss) $ 257,007 $ (254,154)
----------------- -----------------
Dividends on preferred stock (32,330) (49,000)
----------------- -----------------
----------------- -----------------
Total adjusted net income ( I ) $ 224,677 $ (303,154)
----------------- -----------------
Total adjusted weighted - average shares outstanding ( II ) 6,000,000 2,276,000
----------------- -----------------
----------------- -----------------
Earnings (Loss) Per Share (I divided by II) $ 0.04 $ (0.13)
----------------- -----------------
</TABLE>
F-21
<PAGE> 24
ITEM 2. Management's Discussion and Analysis
Century Industries, Inc. In Consolidation
with its Subsidiaries
The third quarter results reflect the continuing efforts of the Company's
management strategies, resulting in substantial earnings when compared with past
years. The major costs connected with the recent acquisitions have been
absorbed.
3rd Quarter Consolidated Operating Results
The Company's consolidated third quarter 1997 revenues totaled $3,376,555,
compared to the same quarter 1996 of $611,925, for an increase of $2,764,630, or
451%. Consolidated operating costs in the third quarter increased from $386,669
in 1996 to $1,211,575 in 1997. Consolidated gross profit in the third quarter
increased from $124,912 in 1996 to $1,416,269 in 1997, an increase of $1,290,572
or 1034%. Consolidated operating income for the third quarter 1997 was $204,909,
an increase of $466,666, or 356%, from the same quarter 1996, which was
($261,757). Consolidated income before taxes increased from ($266,297) in the
third quarter 1996 to $202,707 in the same period of 1997, an increase of
$469,004 or 352%.
Year to Date Consolidated Operating Results
Year to date 1997 revenues have increased from $2,080,570 at September 30, 1996
to $11,226,839 at September 30, 1997, which is a $9,146,269 increase, or 440%.
Year to date consolidated operating income increased increase from ($616,368) at
September 30, 1996 to $822,807 at September 30, 1997, for an increase of
$1,439,175, or 233%. Year to date 1997 income before taxes increased from
($639,185) to $807,998, or $1,447,183, or 226%.
Year to Date Consolidated Assets and Capital Growth
The Company's year to date consolidated assets have increased from $8,001,248 at
December 31, 1996, to $11,947,415 as of September 30, 1997, an increase of
$3,946,167, or 49%. Consolidated capital has increased from $3,597,924 at
December 31, 1996 to $7,641,710 for the third quarter of 1997, for an increase
of $4,043,786, or 112%.
Operating Subsidiaries
The operating subsidiaries, Century Steel Products ("CSP") and DC Partners
("DCP") were profitable, as discussed below, and were not adversely affected in
consolidation due to other income attributable to US Insurance Brokers, Inc.
("USIB"), and the reasonable maintenance costs of the Registrant. The operating
income for each subsidiary is shown as follows, with related deductions for
other income (expense), and provision for taxes and preferred stock dividends of
subsidiaries and in consolidation at September 30, 1997:
-2-
<PAGE> 25
<TABLE>
<CAPTION>
Century USIB DCP/Scibal
Steel Products Brokerage Claims Parent Total
-------------- --------- ------ ------ -----
<S> <C>
Revenues $ 3,311,099 $ -0- $7,915,740 $ -0- $11,226,839
Operating Income 368,287 (199,520) 818,853 (164,813) 822,807
Other
income (expense) (27,450) 301,214 (288,573) -0- (14,809)
Net Pretax Income 340,837 101,694 530,280 (164,813) 807,998
Provision for taxes 15,900
--------
Net Income before Preferred Stock Dividends earnings adjustment 792,098
Net Income Per Common Share before Preferred Dividends $ .13
Less: Preferred Stock Dividends (200,030)
--------
Net Income Available for Common Shareholders $ 592,068
Net Income Per Share $ .10
</TABLE>
It should be noted that CSP and DCP, the operating subsidiaries, had year to
date combined operating income of $1,187,140 on revenues of $11,226,839, which
is a 11% return on revenues for those subsidiaries, whereas the Parent Company
had an operating loss of ($164,813), and USIB had an operating loss of
($199,520) through the third quarter 1997, resulting in consolidated operating
income of $822,807. Net income before taxes through September 30, 1997 were
$340,837 for CSP, $101,694 for USIB, $530,280 for DCP, and ($164,813) for the
Parent Company, totaling $807,998.
The net income leads to earnings year to date per common share of $.13 before
preferred dividends, and $.10 per common share for the year to date after
preferred dividends. This is an increase from the ($.35) for the same period in
1996, and becomes the third consecutive quarter of positive earnings per share
for the Company.
Outstanding shares increased from 3,026,000 at third quarter 1996 to 6,226,533
in the third quarter 1997. The share increase includes the Class B exchange
shares which will retire the preferred shares of the subsidiaries and
subsequently extinguish preferred share dividends. With the listing of the
Registrant's Class B shares with the Philadelphia Stock Exchange, the preferred
shareholders should experience some degree of liquidity.
Management also anticipates submitting an application for listing its Class A
and Class B shares on the NASDAQ "Small Caps" market during the fourth quarter.
The Company and its subsidiaries have more than sufficient cash on hand, and
liquidity from the cash flow of their accounts receivable, to continue to grow
the profitability of their operations.
The following is a discussion and analysis of each subsidiary's results of
operations.
-3-
<PAGE> 26
Results of Operations
Century Steel Products, Inc.
Century Steel Products, Inc.'s (CSP's) sales of $1,084,273 for the third quarter
were 77% greater than the third quarter of 1996 sales of $611,925 by $472,348.
This was due to CSP having additional capital with which to pay suppliers, as
sales were always available.
Labor and warehouse costs were increased to $883,589 for the third quarter 1997,
as opposed to $487,013 for the same period 1996, or 81%. Salaries increased in
1997 as a result of increased sales and production volume.
CSP's third quarter operating income of $123,014 was greater than the 1996 third
quarter's operating income of $(24,129), an increase of $147,143, or 610%.
CSP's revenues year to date for the first 9 months were $3,311,099 for 1997, as
compared to $2,080,570 for the same period in 1996, an increase of $1,230,529,
or 59%. CSP's year to date 1997 operating income of $368,287 was greater than
operating income for the first nine months of 1996 of $135,333 by $232,954, or
172%.
Trade debt remained approximately level at $603,238. Trade receivables increased
to $1,189,913 at the end of the third quarter 1997, as compared to $617,389 at
September 30, 1996.
Sales are projected to increase substantially in the 4th quarter 1997 over 4th
quarter 1996, to approximately $1,000,000 or better.
In addition, CSP has bid and been awarded several projects for next year, which
could potentially increase sales volume to $6,000,000 CSP has added three
detailed drawings draftsman working full time on new project bid takeoffs in
view of CSP's efforts to substantially increase CSP's sales volume for 1998.
Raw materials prices have increased minimally from 1996 prices.
During the second quarter 1997, CSP entered into a limited partnership agreement
with Bainbridge Construction Corporation. This limited partnership was formed
for the partners to work together on various construction projects, with CSP
investing $500,000 of steel equipment, steel products and other necessary raw
materials, and with Bainbridge providing subcontractors, construction equipment,
management and licenses. This limited partnership was effectuated by the filing
of the Limited Partnership with the Business Regulation Administration,
Department of Consumer and Regulatory Affairs, Corporate Division, in
Washington, DC. CSP is the limited partner in the partnership, having a 45%
interest.
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<PAGE> 27
This limited partnership began construction on a private school in Springfield,
Virginia, the Accotink Academy, during the third quarter. This project includes
constructing two new buildings, and, once completed, will provide $3,800,000 in
revenue for the limited partnership. The partnership has additional contracts
for $200,000 in progress. CSP, together with its limited partnership interest
project 1998 revenues of $8,000,000.
U.S. Insurance Brokers, Inc. (USIB)
The Company acquired U.S. Insurance Brokers, Inc. (USIB) in Washington, DC on
December 18, 1995.
USIB was formed to service the members of major national associations in the
D.C. area, which is home to over 4200 such associations. The laws in DC permit
insurance agencies to share after expense profits with non-licensed entities,
whereas all other state laws prohibit commission sharing with non-licensed
entities, such as associations, and do not provide a clear cut path to share
profits.
The USIB business plan allows USIB to share profits with its major associations
through Limited Partnership arrangements, in exchange for marketing rights, and
national association news letter and magazine advertising to their members.
USIB entered into its first major national association Limited Partnership
agreements on March 8, 1996, with the National Lumber and Building Material
Dealers Association (NLBMDA) in Washington, DC, an association formed in 1910
with 11,000 lumber dealer members and 270,000 employees in all 50 states. In the
4th quarter of 1996 USIB was also appointed as Broker of Record by the Korean
American Grocers Association (KAGRO) in Los Angeles, CA. The agreements provide
for USIB to market group health, commercial lines and personal lines auto
insurance to the NLBMDA and KAGRO members and their employees on a national
basis.
USIB has been appointed by Firemen's Fund to provide program coverage for the
NLBMDA commercial lines business at the lowest competitive rates available in
the insurance marketplace. The NLBMDA-USIB commercial lines program has been
accepting insurance applications from NLBMDA members since October 1, 1997,
which should begin producing revenues on January 1, 1998 renewal dates of NLBMDA
members.
In conjunction with the parent company, USIB acquired 100% of DC Partners, Ltd.
(DCP) in the 4th quarter of 1996, with funds raised from a registered New York
State convertible preferred share offering. The USIB convertible preferred
shares are convertible to Century Industries Class B common shares. USIB paid
$1,700,000 in cash and Century Industries issued 820,000 shares of Class A
common stock and a warrant for 727,273 shares of Class B common stock in payment
for DCP.
The Company began exchanging USIB preferred shares for Class B common shares of
the Parent Company as of November 1, 1997.
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<PAGE> 28
The Company announced during the third quarter that it was approved for listing
on the Philadelphia Stock Exchange, and has subsequently announced that both its
Class A and Class B shares were declared effective by the SEC for trading on the
Philadelphia Stock Exchange.
Results of Operations
USIB's third quarter 1997 income before taxes was $53,586, from a loss of
($229,550) for the same period of 1996, an increase of $283,136, or 246%. USIB's
year to date 1997 income before taxes was $101,694, a marked increase from the
($632,090) USIB posted in the same period of 1996, for an increase of $733,784,
or 232%. This increase can be attributed to consulting income from the design of
pension benefit plans (KEOGHS).
USIB has several commercial lines insurance quotes provided by Fireman's Fund
pending for several Lumber Dealers. The rates quoted are extremely competitive
with the Lumber Dealers' present commercial lines coverage.
USIB is also developing Colorado as the pilot project for health insurance
coverage for the Korean American Grocers Association (KAGRO). Premium income for
these national associations is expected to begin in the fourth quarter.
Management is unable to project the amounts of premium expected as there are
many variables involved, such as State Insurance Rating Commission approvals on
lower program rates and coverage, and insurance coverage renewal dates.
DC Partners, Ltd. and its wholly owned subsidiary,
Scibal Associates, Inc.
In 1996, the Company acquired DC Partners, Ltd. ("DCP"), of Somers Point, NJ.
Scibal Associates, Inc., ("Scibal"), the wholly owned subsidiary of DC Partners,
Ltd., is a third party claims administrator (TPA), adjusting and settling claims
for both insurance companies and self insured companies and institutions. Scibal
adjusts in excess of $80,000,000 of claims annually.
Scibal has been in business for 44 years, and specializes in workers
compensation and all phases of commercial liability claims administration. In
administering these programs, DCP offers its customers a full range of services,
including claims adjusting and administration, risk management as well as the
full complement of reporting required for both program management by the
customer as well as for regulatory compliance.
Workers compensation and liability payments total in the tens of billions each
year, and the number of entities which are self insuring and administering this
aspect of their operations continues to grow. With its dual IBM AS 400 computer
systems running internally developed proprietary claims administration and
reporting software, DCP is well positioned to add new customers.
-6-
<PAGE> 29
The customer base of DCP consists of municipal and other government-related
entities, primarily in New Jersey, as well as an expanding base of national and
regional industrial, retail and service corporations. A representative list of
DCP's clients includes: Rutgers University, Masco Corporation, Sequa
Corporation, Burlington Coat Factory Warehouse Corporation, Wawa Food Stores,
Sentinel Real Estate and the Jacksonville Jaguars football team organization.
Claims administration fees currently mirror the "soft" market in the entire
insurance industry. Rates are presently so competitive that they are relatively
stagnant and have been for the last 4 years. Profit margins are slimmer in soft
markets, but markets are cyclical, and have historically upturned and rates
become "hard" for an undetermined cycle after they have remained soft for an
undetermined cycle.
While competition in the claims administration industry is substantial, it has
evolved in the 90's into an industry where the administrator must be hardware
and software intensive. The software must be developed internally and becomes
extremely proprietary. DCP has the capacity to produce excellent and "cutting
edge" claims administration software and is very competitive with other TPAs.
Additionally, it has its 44 year track record of performance and integrity in
its operations and results on behalf of its clients, and is approved to handle
imprest funds for its clients.
DCP has an experienced staff of computer programmers. These programmers are
continuously improving and enhancing the proprietary claims handling software.
Additionally, there is an effort underway at the company to write the "next
generation" of software, which will take advantage of Internet access,
electronic claims reporting, and data warehousing for its customers. The new
system will enable the company to better leverage its adjusters against case
loads, which will lead to higher profit margins while maintaining competitive
pricing. The features and functionality offered are singular, which should
provide DCP with a substantial sales advantage in the near future.
DCP employs approximately 160 persons. None of the employees are represented by
labor unions so the company is not vulnerable to union demands or the threat of
a strike. Employee turnover is at a rate consistent with or lower than the
industry average, with a majority of the employees having been with the company
for more than three years.
Results of Operations
DCP's sales for the 1997 third quarter were $2,292,282. DCP's year to date sales
through the third quarter 1997 totaled $7,915,740.
The trade debt for DCP at September 30, 1997, totaled $852,594. DCP's trade
receivables at September 30, 1997 were $1,077,330. DCP's 1996 and 1995 annual
audits were filed on EDGAR as Form 8-Ks by the Company and quarterly figures for
1996 were not broken out for comparison.
-7-
<PAGE> 30
DCP's third quarter 1997 operating income was $209,620, and the year to date
1997 operating income for DCP was $818,853.
DCP's net income before taxes for the third quarter 1997 totaled $69,633. Net
income before taxes for the nine months ending September 30, 1997 for DCP
totaled $530,280.
PART II - Other Information
ITEM 1. Legal Proceedings
NONE
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
NONE
ITEM 5. Other Information
The Registrant filed in August, 1997 a Form 8-A with the SEC to register its
Class A common voting shares as a Class pursuant to Section 12(b). The Class A
shares were approved for trading on the Philadelphia Stock Exchange by the SEC
in October, 1997. The shares trade under the symbol CII.A.
The Registrant filed in August, 1997 a Form 10-SB with the SEC to register its
Class B common voting shares as a Class pursuant to Section 12(g). The Class B
shares were issued in trust in 1996 and will be exchanged with the USIB
subsidiary's convertible preferred shareholders for their preferred shares
pursuant to Rule 144. The Class B shares were approved for trading on the
Philadelphia Stock Exchange by the SEC in November, 1997. The shares will trade
under the symbol CII.B.
The Registrant has authorized its transfer agent, Manhattan Transfer Registrar
Co., to begin exchanging its Class B shares for the preferred shares of its
subsidiaries, in November, 1997, as a result of the SEC's declaring the
Registrant's Form 10-SB effective. This exchange will take place over the
ensuing 12 months, in six tranches, pursuant to Rule 144.
ITEM 6. Exhibits and Reports on Form 8-K.
NONE
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<PAGE> 31
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
November 14, 1997
Century Industries, Inc.
\s\ Ted L. Schwartzbeck
--------------------------
Ted L. Schwartzbeck
President & CEO
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<PAGE> 32
INDEX TO EXHIBITS
(l) Underwriting Agreement. Not applicable.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession. Not applicable.
(3) Articles of Incorporation and Bylaws. Incorporated by reference through
previously filed 10-K's.
(4) Instruments Defining the Rights of Security Holders, Including Indentures.
Incorporated by reference through previously filed 10-K's.
(5) Opinion: re: Legality. Not applicable.
(6) No Exhibit Required.
(7) Opinion: re: Liquidation Preference. Not applicable.
(8) Opinion: re: Tax Matters. Not applicable.
(9) Voting Trust Agreement and Amendments. Not applicable.
(10) Material Contracts. Not applicable.
(11) Statement re: Computation of Per Share Earnings. Not applicable.
(12) No Exhibit Required.
(13) Annual Report to Securities Holders. Not applicable.
(14) Material Foreign Patents. Not applicable.
(15) Letter re: Unaudited Interim, Financial Information. Not applicable.
(16) Letter on Change in Certifying Accountant. Not applicable.
(17) Letter re Director Resignation. Not applicable.
(18) Letter re: Change in Accounting Principles. Not applicable.
(l9) Report Furnished to Security Holders. Not applicable.
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<PAGE> 33
INDEX TO EXHIBITS - CONT'D
(20) Other Documents Furnished to Security Holders. Not applicable.
(21) Subsidiaries of the Registrant. See attached Exhibit 21.
(22) Published Report Regarding Matters Submitted to Securities Holders. Not
applicable.
(23) Consents of Experts and Counsel. Not applicable
(24) Power of Attorney. Not applicable.
(25) Statement of Eligibility of Trustee. Not applicable.
(26) Invitations for Competitive Bids. Not applicable.
(27) Financial Data Schedule. See attached Exhibit 27.
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities. Not applicable.
(29) Additional Exhibits. Not applicable.
-11-
<PAGE> 1
EXHIBIT 21
21. A list of all subsidiaries, the State or other jurisdiction of incorporation
or organization of each, and the names under which the subsidiaries do business.
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation Does Business As
================================== ============================ =================================
<S> <C> <C>
Century Steel Products, Inc. Virginia Century Steel Products, Inc.
US Insurance Brokers, Inc. District of Columbia US Insurance Brokers, Inc.
DC Partners, Ltd. New Jersey DC Partners, Ltd.
Scibal Associates, Inc. New Jersey Scibal Associates, Inc.
</TABLE>
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 993,174
<SECURITIES> 789,537
<RECEIVABLES> 2,221,166
<ALLOWANCES> 43,000
<INVENTORY> 200,771
<CURRENT-ASSETS> 4,889,376
<PP&E> 3,117,772
<DEPRECIATION> (1,026,992)
<TOTAL-ASSETS> 11,947,415
<CURRENT-LIABILITIES> 3,494,301
<BONDS> 200,000
0
1,060
<COMMON> 6,226,000
<OTHER-SE> 7,829,193
<TOTAL-LIABILITY-AND-EQUITY> 11,947,415
<SALES> 11,226,839
<TOTAL-REVENUES> 11,226,839
<CGS> 6,309,382
<TOTAL-COSTS> 6,309,382
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 43,000
<INTEREST-EXPENSE> 228,163
<INCOME-PRETAX> 807,998
<INCOME-TAX> 15,900
<INCOME-CONTINUING> 807,998
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 592,068
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
